How Our Calculations Work

1. Interest Calculation Fundamentals

Most revolving credit products calculate interest daily, not monthly.

Example: If your APR is 19.99%:

• Daily Rate = 19.99% ÷ 365 = 0.0548% per day
• On a $5,000 balance: $5,000 × 0.000548 ≈ $2.74 interest per day

Interest accumulates each day and is typically posted at the end of the billing cycle.

Some lenders use 360 days instead of 365, which slightly increases the effective rate.

2. Credit Card Calculations

Credit cards often carry multiple balances simultaneously, each with its own interest rate.

Examples:

• purchases at 19.99%
• balance transfer at 0% promotional rate
• cash advances at 29.99%

Our calculators model these as balance segments.

Each segment has:

• its own APR
• optional promotional expiration date
• independent interest accrual

Promotional Rate Expiry

When a promotional rate expires, the remaining balance converts to the card’s regular APR.

Some promotional offers also include deferred interest, where accumulated interest may be charged retroactively if the balance is not paid before the promotional deadline.

3. Minimum Payment Modeling

Minimum payments vary by lender but usually follow formulas such as:

• percentage of balance (typically 1–3%)
• interest plus small principal percentage
• percentage of balance with a fixed minimum floor

Because minimum payments decrease as balances decrease, repayment can take many years.

The Minimum Payment Trap Calculator simulates these declining payments and the resulting repayment timeline.

4. Single Debt Payoff Calculations

The Single Debt Payoff Calculator simulates repayment month by month.

For installment loans, payments follow the standard amortization formula:

Each payment is applied in this order:

1. interest
2. principal

Extra payments and lump sums reduce principal directly and shorten the payoff period.

5. Debt Strategy Planner

The Debt Strategy Planner compares two common repayment strategies.

Avalanche Method

Debts are prioritized by highest interest rate first.

This method minimizes total interest paid.

Snowball Method

Debts are prioritized by smallest balance first.

This method creates quick psychological wins and momentum.

Balance Transfer Simulation

The Debt Strategy Planner can simulate the impact of transferring a balance from one account to another.

6. Line of Credit (LOC) Calculations

Lines of credit typically use the Average Daily Balance (ADB) method.

Interest accrues each day based on the outstanding balance.

The LOC calculator models transaction-level balance changes, including:

• withdrawals
• payments
• posting timing

Interest is calculated separately for each period between balance changes.

7. HELOC Calculations

Home Equity Lines of Credit usually have two phases.

Phase 1: Draw Period (typically 5-10 years)

• withdrawals allowed
• often interest-only payments
• interest calculated daily

Phase 2: Repayment Period (typically 10-20 years)

When the draw period ends:

• new withdrawals are no longer allowed
• the balance converts to an amortizing loan
• payments include principal and interest

The repayment payment is calculated using the standard amortization formula.

8. Rounding and Precision

Financial institutions usually calculate interest using cent-level rounding.

To replicate this behavior:

• calculations are performed using cent-level precision
• interest is rounded to the nearest cent at posting periods

This prevents cumulative rounding errors.

9. Why Results May Differ From Your Lender

Actual results from your lender may differ due to:

• different compounding conventions
• different rounding rules
• different day-count conventions (360 vs 365)
• payment posting timing
• fees or penalties not included in the calculator
• variable interest rates

For exact details, always review your loan agreement.